Question

On January 1, 2017, Panther, Inc., issued securities with a total fair value of $588,000 for 100 percent of Stark Corporation's outstanding ownership shares. Stark has long supplied inventory to Panther. The companies expect to achieve synergies with production scheduling and product development with this combination.

Although Stark's book value at the acquisition date was $334,000, the fair value of its trademarks was assessed to be $68,000 more than their carrying amounts. Additionally, Stark's patented technology was undervalued in its accounting records by $186,000. The trademarks were considered to have indefinite lives, and the estimated remaining life of the patented technology was eight years.

In 2017, Stark sold Panther inventory costing $102,500 for $205,000. As of December 31, 2017, Panther had resold 61 percent of this inventory. In 2018, Panther bought from Stark $172,000 of inventory that had an original cost of $86,000. At the end of 2018, Panther held $46,400 (transfer price) of inventory acquired from Stark, all from its 2018 purchases.

During 2018, Panther sold Stark a parcel of land for $108,000 and recorded a gain of $19,200 on the sale. Stark still owes Panther $74,800 (current liability) related to the land sale.

At the end of 2018, Panther and Stark prepared the following statements in preparation for consolidation.

	Panther, Inc.				Stark Corporation
Revenues	$	(856,800	)		$	(392,000	)
Cost of goods sold		368,600				205,700
Other operating expenses		201,800				88,100
Gain on sale of land		(19,200	)			0
Equity in Stark's earnings		(72,525	)			0
Net income	$	(378,125	)		$	(98,200	)
Retained earnings 1/1/18	$	(377,500	)		$	(318,900	)
Net income		(378,125	)			(98,200	)
Dividends declared		103,300				36,500
Retained earnings 12/31/18	$	(652,325	)		$	(380,600	)
Cash and receivables	$	137,000			$	187,000
Inventory		417,200				133,100
Investment in Stark		762,300				0
Trademarks		0				70,100
Land, buildings, and equip. (net)		856,700				338,300
Patented technology		0				150,900
Total assets	$	2,173,200			$	879,400
Liabilities	$	(791,875	)		$	(282,200	)
Common stock		(400,000	)			(180,000	)
Additional paid-in capital		(329,000	)			(36,600	)
Retained earnings 12/31/18		(652,325	)			(380,600	)
Total liabilities and equity	$	(2,173,200	)		$	(879,400	)

1. Show how Panther computed its $72,525 equity in Stark's earnings balance.

2. Prepare a 2018 consolidated worksheet for Panther and Stark.

   Accounts Consolidated Totals $ 0 Revenues Cost of goods sold Other operating expenses Gain on sale of land Equity in Stark's earnings Net income Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 Cash and receivables Inventory Investment in Stark Trademarks Land, buildings, and equipment (net) Patented technology Total assets Liabilities Common stock Additional paid-in capital Retained earnings (above) Total liabilities & stockholders' equity PANTHER AND STARK Consolidation Worksheet Year Ending December 31, 2018 Consolidation Entries Panther Stark Debit Credit $ (856,800) $ (392,000) 368,600 205,700 201,800 88,100 (19,200) 0 (72,525) 0 $ (378,125) $ (98,200) $ (377,500) $ (318,900) (378,125) (98,200) 103,300 36,500 $ (652,325) $ (380,600) $ 137,000 $ 187,000 417,200 133,100 762,300 70,100 856,700 338,300 150,900 $ 2,173,200 $ 879,400 $ (791,875) $ (282,200) (400,000) (180,000) (329,000) (36,600) (652,325) (380,600) $(2,173,200) $ (879,400)| 0 0 $ 0

Answer 1

consolidation worksheet (856,800) $ (392,000) $ 368,600 $ 205,700 $ $ Revenues Cost of goods sold (1,162,800) 86,000 23,200 $ $ 86,000 39,975 $ 471,525 88,100 $ 313,150 $ $ $ Othrt operating expenses Gain on slae of land Invenstment income Net Income 201,800 $ (19,200) (72,525) (378,125) $ 23,250 19,200 72,525 $ (98,200) $ (378,125) Retained earnings 1/1 $ (377,500) $ 39,975 278,925 $ $ Net Income (Above) Dividends declared Retained earnings 12/31 (378,125) $ 103,300 $ (652,325) $ (318,900) $ $ (98,200) 36,500 (380,600) (377,500) (378,125) 103,300 (652,325) $ 36,500 $ $ $ $ $ Cash and receivables Inventory Investment in stark 137,000 417,200 762,300 $ $ 187,000 133,100 74,800 $ 23,200 $ 762,300 $ 249,200 527,100 $ S $ 68,000 $ $ $ 856,700 Trademarks Land, buildings and equipment(net) Patented technology Total assets $ $ $ $ 70,100 338,300 150,900 879,400 $ $ 19,200 23,250 138,100 1,175,800 290,400 2,380,600 $ 162,750 $ 2,173,200 $ Liabilities Common stock Additional Paid in capital Retained earnings 12/31/18 Total liabilities and equity $ $ $ $ $ (791,875) $ (400,000) $ (329,000) $ (652,325) $ (2,173,200) $ (282,200) $ (180,000) $ (36,600) $ (380,600) (879,400) $ 74,800 180,000 36,600 $ (999,275) (400,000) (329,000) (652,325) (2,380,600) 1,065,225 $ 1,065,225 $

Stark Resorteu incuire Patented technology arnarticati il 165000/a) Beginning Inwento cross profit recognised Endine inwento BOSS profit deferred Deferral of land gain on sale Equity in stare's earnings IS198 200) $ 21 20 $ (39.975) 23. 200 $ 19,200 (7225) $ $ S 588.000 334.000) 254 ( II b. Acquisition date lair value allocation Cons deration transferred tal value of shares issued Book value of subsidiary Fair va up in excess of boak value: Excess fair value over book value assgned to: Tradernarica indefinite life! Patented Technolesy Remainingite of patented technology Annual Amortization 195000/8 years! 3 68.000 186.000 $ $ 23 250 $ Intrarentity stream Geroft intraentity Inventory (5205.000 390 Gross proftrate (02500/205.000 Intra t y ross proftin inventory 12/31 79.950 50% 39975 $ $ Intrare ntity wstream Gross proft 12/31 istra entity inventory sive Gross profit rate 60000/1800.00 Intra entity ross proftin inventory 12/31 46.400 5954 23.200 $ Consolidation Entries Entry S 39.975 Retained Earnings 1/1 Stark) Cost of foods sold To remove began ng intra entity gross profit. Amount pamputed above $ 39,975 Entry S Curnnan stock (stark! 180,000 Additional pa din capitalistark! 36 600 Retained eamines 1/1(stark, adjusted 296300-28000) 278.925 Investment in stark $ 49,25 la remove subsidiary stockholders' equity accounts. Retained earnings is adjusted for elimination of upstream intraentily ross profit in Entry "G. Entry Trademarks $ 68,000 Patentec Technology 136000-232501 I $ 152.750 Investment in stark Ta recognize excess fair value allocations as af 1/1. Patented technology is adjusted for one arior year of arnertization at $27,000 per year. Entry Investment Income $ 72525 Investment in stark $ 72.525 To remove intraent ty neome accrued by parent using the equity method IS 36 500 Entry D Investment in stark Didends declared To eliminate intra-entitydens S 35.500 Entry Other grote Patented techno CEY S 21250 S 23,250 SNOM Entry I Rewees Cost of goods sold To eliminate intraent tynventory transfer for current year. Entry Cost of goods sod Inventory $ 23. 200 $ 23,200 IS19 200 Entry TL Gain on sale of land land To remove bain from intra entity transfer of land during current year. S 19,200 Entry Accounts Payable Arcounts Rapoivable To remove intra ant ty hayable and recevabe. $ 74,900